Glossary of Municipal Securities Terms


(1) Underwriter Spread With respect to a new issue of municipal securities, the difference between the price paid by the underwriter to the issuer for the new issue and the prices at which the securities are initially offered to the investing public; this is also termed the “gross spread,” “gross underwriting spread” or “production.” The spread is usually expressed in dollars or points per bond. Historically, the spread has consisted of four components, although one or more components may not be present in any particular offering:

Expenses – The costs of operating the syndicate for which the senior manager may be reimbursed.

Management Fee – The fixed percentage of the spread that is paid to the senior manager and/or co-managers for handling the affairs of the syndicate.

Takedown – Normally the largest component of the spread, similar to a commission, which represents the income derived from the sale of the securities. If bonds are sold by a member of the syndicate, the seller is entitled to the full takedown (also called the “total takedown”). If bonds are sold by a municipal securities dealer that is not a member of the syndicate, such seller receives only that portion of the takedown known as the concession or dealer's allowance, with the balance (often termed the “additional takedown”) retained by the syndicate.

Risk or Residual – The amount of profit or spread left in a syndicate account after meeting all other expenses or deductions. A portion of the residual is paid to each underwriter within a syndicate on a pro rata basis according to the number of bonds each municipal securities dealer has committed to sell without regard to the actual sales by each member.


(2) Bid-offer Spread With respect to securities trading in the secondary market, the differential between the bid price and the offering price in a two-sided market quotation. This is often referred to as a “bid-offer spread” or “bid-ask spread.” See: BID; OFFER; TWO-SIDED MARKET.

(3) Yield Spread The difference in yields, expressed in basis points, as a spread between two securities or between a security and an index or benchmark. See: SPREAD COMPRESSION.

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